Consumer price index
- December quarter 2011

The Consumer Price Index (CPI) was flat in the December quarter 2011, down from its 0.6 per cent increase in the September quarter. Headline inflation was 3.1 per cent through the year, down from 3.5 per cent in the September quarter.

Underlying inflation was 0.6 per cent in the quarter, up from 0.4 per cent in the September quarter. In through-the-year terms, underlying inflation in the December quarter increased slightly to 2.6 per cent in the middle of the RBA's target band.

The moderation in headline inflation in the quarter primarily reflected a decline in fruit and vegetable prices (down 9.6 per cent) largely as a result of the continued recovery in production following last summer's natural disasters. In particular, banana prices fell by 46 per cent in the quarter, with production returning to more normal levels. There were also seasonal declines in the price of pharmaceuticals (down 5.6 per cent), and additional declines in the price of motor vehicles (down 1.2 per cent) and clothing and footwear (down 0.5 per cent).

While the moderation in headline inflation is encouraging, many households continue to face cost of living pressures.

Partly offsetting these price falls were increases in the prices for recreation and culture, accompanied by increased housing costs. Recreation and culture prices increased by 0.8 per cent, contributing 0.1 percentage points to headline CPI, mainly due to increases in the price of domestic holiday travel. Housing costs rose by 0.4 per cent, contributing 0.1 percentage points, reflecting ongoing strength in rents.

Today's inflation outcomes are a reminder of our strong fundamentals that set us apart from the developed world at a tough time for the global economy. We have solid growth, very strong public finances, low unemployment, contained inflation and a huge pipeline of investment.

These key pillars of economic strength - along with the Government's proven track record - make us uniquely placed to deal with ongoing global instability to keep the Australian economy strong.